Who pays VAT under DDP terms

DDP as a tax trap?

The international delivery condition DDP (Delivery Duty Paid) is often agreed in cross-border trade. Both the seller and the recipient of the goods have an economic interest in agreeing such a clause. In doing so, however, the customs and tax difficulties are often overlooked. This applies in particular if the supplier comes from a third country and delivers “duty paid / taxed” to a domestic customer. This can have unexpected consequences for both the supplier and the recipient of the goods.

DDP is one of the arrival clauses of the International Commercial Terms (INCOTERMS). “Delivered / duty paid” means that the seller places the goods ready for unloading at the named destination. The seller bears all costs and risks associated with the transport of the goods to the place of destination and is obliged to clear the goods not only when they are exported, but also when they are imported, and all duties for both export and import to pay as well as to take care of all customs formalities. This means that the seller or sender has to bear all import duties in the EU. In addition to customs duties, these include import sales tax and, for certain types of goods, excise duties or agricultural taxes.

When it comes to imports, companies are often represented by specialized service providers such as freight forwarders, freight carriers, customs brokers or other logistics service providers. Such service providers basically act as representatives for their clients. There are two types of representation under customs law:

  • Direct representation: Here the service provider acts in the name and for the account of his client.
  • Indirect representation: The service provider acts in his own name but for the account of his client.

In the case of direct representation, all duties under customs law as declarant and tax debtor remain with the client. If the logistics service provider does not intentionally or grossly negligently breach customs duties, he does not face any risks from his client's customs procedure. It looks different when the logistics company acts as an indirect representative. In this case he himself becomes the declarant and thus, together with his client, becomes the debtor of the import duties. The risk of having to claim the import duties of a client based in a third country regularly causes logistics companies not to act as indirect agents.

In the case of the DDP delivery condition, the customer for the logistics company will usually be the seller or consignor. If they are based in a third country such as China, the USA, Switzerland, etc., logistics service providers are not allowed to represent them directly. In this situation, only indirect representation remains, which logistics service providers regularly do not take on because of the associated risk. The logistics service providers are thus in a dilemma. You want to carry out clearance orders but at the same time do not want to assume liability for the import duties of your client. An almost inevitable alternative strategy is that logistics service providers state in the customs declaration that they are acting directly on behalf of the domestic recipient of the goods and that they submit the declaration on his behalf. The logistics service provider submits a summary declaration in the name of the recipient of the goods and provides the goods. If necessary, he will submit a customs declaration later.

Before we go into the consequences of this action, it makes sense to consider the motivation of the trading partners involved in agreeing the DDP delivery condition:

  • The recipient of the goods does not want to have anything to do with the customs formalities of the import.
  • The seller / consignor often intends to keep the origin of the goods or the sub-suppliers as secret as possible from the buyer. Another reason could also be not to disclose the calculation bases, which could result in particular from the customs declaration, to the client.

In this constellation, documents such as transport documents and customs papers often remain with the client. The recipient of the goods will then only have an invoice and, if necessary, a delivery agreement.

In this situation, there are consequences for everyone involved, which are often not seen at all.

  • If the logistics service provider acts as a representative without power of attorney, he does so in his own name for his own account. He thus becomes the declarant and thus the debtor of the import duties. If the client from the third country pays the import duties or reimburses the service provider, the problem with the payment of the import duties appears to be over. This view neglects the subsequent problems. If it turns out in a later customs inspection that the customs declarations were incorrect and higher import duties have to be set afterwards, the question regularly arises as to who should pay the excess amounts. It can then easily be the case that once the facts have been fully uncovered, the customs authorities will call upon the freight forwarder directly. As a result, the risk in such cases is higher than that of the tax liability from indirect representation.
  • In practice, however, other difficulties are likely to arise. The tax audits are carried out regularly at the recipient of the goods. In the actual sense, however, this is not the importer and the tax debtor at all, if DDP has been agreed. The examination only takes place at his place because he may have been named as the applicant by the logistics service provider without his knowledge. In case of doubt, he also does not have the import documents required for a customs inspection. The following picture emerges for the customs inspector: The audited company has, as evidenced by its own accounting, possibly only evidenced by incoming invoices with a reference to a port of departure or another point of departure in the third country, received deliveries of goods from the third country. If no corresponding customs documents can be presented, the customs inspector will assume that the goods entered the EU without registration and without payment of import duties (offense of smuggling) or that they were withdrawn from customs supervision after importation (for example from temporary storage) ). If the facts are not clarified, the importing company will be confronted with the determination of import duties, interest and possibly even fines. In any case, clarifying the facts and procuring the necessary customs papers from the seller / consignor or the commissioned logistics service provider will be very time-consuming. Everyone involved should bear in mind that the facts in examination cases often date back years and are difficult to clarify in practice.
  • Logistics service providers who act as representatives without power of representation should be aware of the consequences under civil law. This applies at least if the domestic company did not know about the registration in its name and did not expressly or tacitly approve the representation afterwards. In this case, the logistics service provider is not only threatened with claims in the amount of import duties, but also with ancillary services such as interest or the additional expenses that the audited company had to clarify the facts and advice from external consultants. In special case constellations there is even a risk of criminal law consequences.
  • Import sales tax poses a particular problem. If import sales tax is set against logistics service providers, they cannot deduct this as input tax. The ECJ explicitly confirmed this opinion of the tax authorities in its judgment of June 25, 2015 (case C-187/14).
  • Only the entrepreneur who uses the imported item for his company is entitled to deduct input tax. It is completely irrelevant who is the debtor of the import sales tax, who pays it or who brought the item into the Community. The difficulty with DDP deliveries is that in a later tax audit, the receipt of the goods at the recipient is not such that this unequivocally gives rise to the right to deduct import sales tax. Clarification and the procurement of documents are then often considerable. Here, too, it applies that the respective facts to be clarified sometimes date back years.
  • It is questionable whether the aforementioned regulation is tenable in terms of taxation. This is due to the fact that the sales tax law for DDP deliveries actually prescribes a completely different procedure than that which is customary in practice today. In § 3 (8) UStG it says: If the object of the delivery arrives in Germany during transport or dispatch from the third country area, the place of delivery of this object is deemed to be in Germany if the supplier or his agent is liable for the import sales tax. If the delivery clause DDP is agreed, the recipient of the goods is usually not the debtor of the import duties and therefore not the import sales tax, but the sender. This means that the place of delivery is inland. This means that the third country company would have to settle its delivery with German sales tax, register for sales tax in Germany and meet all tax obligations here. The recipient of the goods would have the input tax deduction from the incoming invoice with German sales tax and not on the basis of the import sales tax borne by the seller / sender or the service company commissioned by him. In theory, the domestic recipient could claim input tax twice. That is, of course, an inaccurate and undesirable result from the tax authorities. However, as long as the tax authorities stick to their administrative approach, recipients of the goods will still be able to claim import sales tax if there is no risk of double deduction.
  • Attention should also be drawn to the risk that at the time of subsequent information and document procurement, one of the companies involved is no longer active in the market; e.g. due to bankruptcy that has occurred in the meantime. If checked facts are long ago, the question arises as to whether the relevant documents have been archived or destroyed in the meantime.
  • Another problem that is overlooked is the external trade obligations of the recipient of the goods. In contrast to the customs procedure, obligations from foreign trade import clearance cannot be shifted to the sender or a commissioned service provider. This means that customs and foreign trade import declarations can fall apart. The recipient of the goods always remains obliged to do so, even if the sender or the logistics service provider commissioned by them has submitted the necessary registrations.

Further details can be found in the article by Dr. Michael Jung, Design options and risks in import transactions with an agreed delivery clause “free domicile / duty paid” (DDP), ZfZ 9/2010, p. 225.

The question arises as to how companies can circumvent the difficulties:

  • The simplest solution would be to agree on a different delivery clause. The clause DDU (Delivered Duty Unpaid). The problem is that this delivery clause was deleted as part of the new version of INCOTERMS 2010. It can still be agreed, but it tends to be rather unusual and is therefore rarely needed. Of course, other delivery clauses such as DAP or DAT could also be used. Overall, however, all of these delivery clauses are not widely accepted. In addition, they are extremely unsuitable for certain business constellations such as direct shipping from third countries to private individuals in the EU. The mail order company can hardly expect the private buyer to have to take care of customs clearance himself.
  • The domestic logistics company could of course also offer its services as an indirect agent. As a rule, however, this is likely to fail because the logistics service provider can no longer offer this service at competitive prices. He would not only have to have the entire risk from the import insured. It would also have to factor in future costs, for example for customs audits and tax audits to be carried out on his premises.
  • For third country companies that regularly and in large quantities import goods into the EU, the question arises whether they should not set up a company based in the EU to act as a customs clearance company. For such a company, a domestic logistics company could easily act as a direct representative (group solution).
  • Whether joint ventures between various third-country exporters or domestic service providers would also be a solution for acting as a customs broker based in the EU would have to be investigated.


Whichever way you choose in the individual case. Customs clearance scenarios should always be regulated in the agreement between the parties. As in other contracts, the recipient of the goods, who receive them with the DDP delivery condition, should always obtain assurance that his client will provide him with all papers and documents necessary for the deduction of import duties on request.

Authors: Peter Scheller, Tax Advisor - Master of International Taxation, www.scheller-international.com / Susanne Zaczek, Customs expert, www.zoll-service-kiel.de